Allergy Therapeutics Plc (LON:AGY) is a long-established specialist in the prevention, diagnosis and treatment of allergies. It has an underlying profitable and cash generative business despite its lead product being available only on a ‘Named Patient’ basis. However, protocols agreed with EU and US regulators are in place to get Pollinex Quattro approved as a biological. The US opportunity is enormous and only two players have short-course treatments. There is a valuation mis-match between AGY and its peers, which either have no growth or little marketing experience, which provides scope for considerable upside towards our risk-adjusted DCF valuation of 89p per share.
► Strategy: AGY is a fully integrated pharmaceutical company focused on the treatment of allergies. There are three parts to its growth strategy: approval of its lead product, particularly in the US; geographical expansion of its product portfolio; active participation in industry consolidation.
► Newsflow: AGY has announced very good progress in the second of three clinical trials required for FDA approval as a biologic and a further update is due in the middle of 2016. In addition, the company has licenced-in virus-like particle technology for the development of a new products for peanut allergy.
► Valuation: Based on our forecasts for market share gains in the US, our risk adjusted DCF valuation is 89p per share. This upside potential is supported by an apparent mis-match between the value of AGY with its peers, which have either limited growth opportunities or little commercial experience.
► Risks: AGY must undertake some additional clinical trials in order to achieve regulatory approval. However, given that protocols have been agreed with both EU and US regulators and that Pollinex Quattro has been used in 200,000 patients to date, the risks have been minimised.
► Investment summary: Allergy Therapeutics Plc is a very promising opportunity. Not only does it have a profitable and cash generative underlying business, regulatory approval of Pollinex Quattro would be a transformational event. The market is valuing AGY similarly to its low-growth peers suggesting that little or no value is being afforded PQ in the US which, given the FDA trial agreement, is unrealistic.